Nexsi Hits the Exit

Nexsi Corp., a Silicon Valley startup that was working on a data center switch, has officially shut down.

The company has filed for Chapter 7 bankruptcy, the Website has been dismantled, and the company’s phone system is not routing calls. On Monday, April 15th, the San Jose, Calif., company, shut its doors for good. Like many other startups, Nexsi simply ran out of money, says Dave Passmore, research director for the Burton Group.

Chapter 7 bankruptcy is more serious than a Chapter 11 filing. In Chapter 11, a company is filing to have a court distribute assets to creditors so that it can reorganize. Chapter 7 companies have no plans of pulling back from the brink.

The Nexsi 8000, introduced in September 2001, has been described by some analysts as a data center switch on steroids. Many likened it to a souped-up Alteon or Arrowpoint Web switch, both of which enabled networks to more efficiently route application data and speed up Internet connections. Alteon WebSystems was sold to Nortel Networks Corp. (NYSE/Toronto: NT) in July 2000, and Arrowpoint was sold to Cisco Systems Inc. (Nasdaq: CSCO) back in May 2000 (see Nortel Buys Alteon for Big Bucks and Cisco Finds A Soft Spot for ArrowPoint). In fact, Mark Bryers, vice president and chief scientist for Nexsi, was the founding CEO and CTO of Alteon.

Nexsi had raised a total of $90 million, $75 million of which was raised in September of 2000 (see Nexsi Nets $75 Million). Big-name backers like Sequoia Capital, Raza Foundries, Amerindo Investment Advisors Inc., and Presidio Venture Partners were on board for both rounds of funding. But none of the investors was willing to continue pouring money into the company. The VCs did not return calls by press time.

Although the product seemed promising, the company had one fatal flaw, according to Passmore. The architecture called for a large number of microprocessors assembled on an ASIC to achieve multigigabit throughput. The technology was cutting edge and an exciting breakthrough in switching, but it was very expensive to package and manufacture.

“The company was really pushing the state of the art in terms of ASIC design,” says Passmore. “But it’s not easy to pack that many gates and processors onto a chip, and they were burning through incredible amounts of money.”

Nexsi’s expensively designed product coupled with the economic downturn spelled disaster. But even eight months ago, the company seemed to be optimistic about its prospects, at least on the surface. Light Reading noted in an article about the networking job market that Nexsi was recruiting aggressively for new employees (see Job Market Isn't Dead).

The void left by Nexsi will soon be filled by two other startups also building super-performing data center switches. Inkra Networks, which has been around since 2000, has raised $36.5 million so far. There are rumblings in the venture community that the company is about to close another round of funding. Nauticus Networks Inc., which has raised $33 million and has recently come out of stealth mode, is also another competitor, although it is focused more on the large enterprise market (see Nauticus Emerges From Stealth Mode).

Even though these companies have raised far less cash than Nexsi had, Passmore feels they have a better chance of success.

“Inkra and Nauticus have completely different architectures from Nexsi,” he says. “They haven’t revealed their secret sauce, but I can tell you that they aren’t taking the same brute-force architectural approach that Nexsi took.”

— Marguerite Reardon, Senior Editor, Light Reading
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daytonabeach 12/4/2012 | 10:35:12 PM
re: Nexsi Hits the Exit Guess who was the management of the company ? It was the VCs again !! Big surprise, Huh ! Almost all of atiq raza's investment have gone bust (maple, procket, ....).

BTW, the sequoia VC was the CEO and raza was his right hand man and Chairman of the company.

If you work for Raza foundries, this is a good time to head for the door and find a new job before you get caught in the deluge of lawsuits against raza and his 0% yield foundry.
docsisdude 12/4/2012 | 10:35:12 PM
re: Nexsi Hits the Exit another one falls in the wind, after management promised employees that things would pull through. funny if inkra needs another round ... they were supposed to have enough to go through the year and ship product ... another management lie and another dilutive round and soon another company that won't be around. At least inkra is lucky not to have product yet - it would just sit around while they spend millions sending demo units to "potential customers". perhaps the market will uptick (right) and customers will be more active in buying inkra's product - or perhaps they'll do what evey other systems company has had to do and cut the majority of their chip team once they've sampled silicon (ala fastchip, nexsi, maple, etc) and hope someone buys them.
aa 12/4/2012 | 10:35:11 PM
re: Nexsi Hits the Exit This was another one which had a lot of VC money - it closed today.

Any news of Calix, Vivaci and Atoga ??
terrarooter 12/4/2012 | 10:35:10 PM
re: Nexsi Hits the Exit

Was Chris Rust CEO here for a few months ? Or am I confusing Nexsi with some other co. ?

Rust is now heading Mahi
overseer 12/4/2012 | 10:35:10 PM
re: Nexsi Hits the Exit Would anyone know when and who will be
auctioning off the tangible assets?
KPSmells 12/4/2012 | 10:35:08 PM
re: Nexsi Hits the Exit Yes. You are right. This is the one with Chris Rust from Sequoia Capital as CEO. And now he is the CEO of Mahi, i think.
lrdr 12/4/2012 | 10:35:07 PM
re: Nexsi Hits the Exit I was wondering why the name sounded so familar. That company is essentially gone. I heard that the former CEO interviewed at Calix.
phartknocker 12/4/2012 | 10:35:06 PM
re: Nexsi Hits the Exit Ouch ouch ouch...sounds like this l'il feller is getting his hands burnt off at the end of the optical supernova. When you give the keys of the VC car to a novice, and without a chaperone...

This guy is not totally to blame methinks. What idiotic start-up would bring on a 32-year old to run their company? With all due respect to Chris, he hasn't been on the earth as long as some of the leading managers in telecom have managed.
lightbulb0 12/4/2012 | 10:35:05 PM
re: Nexsi Hits the Exit what happened to Chris Rust? I could not find him on Sequoia's roster any more.
sillyvalleyviewer 12/4/2012 | 10:35:04 PM
re: Nexsi Hits the Exit I believe John McFarlane from Sun was the CEO
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